5

Capacity Planning
Weeks 5 (Supplement 7)

Operations Management, Sustainability and Supply Chain Management,

Global Edition, Eleventh Edition, PEARSON
Jay Heizer and Barry Rander © 2014 Pearson Education
 Textbook for
Used

Operations Management, Sustainability and

Supply Chain Management,
Global Edition, Eleventh Edition, PEARSON
Jay Heizer and Barry Rander (2014)
 Outline

► Capacity
► Bottleneck Analysis and the Theory of
Constraints
► Break-Even Analysis
► Reducing Risk with Incremental
Changes

© 2014 Pearson Education

Global Company Profile
Capacity
 define
CAPACITY
The “throughput” or number of units a facility can hold,
receive, store or produce in a period of time

 Capacity decisions often determine capital requirement and therefore

a large portion of fixed cost.
 Capacity also determines whether demand will be satisfied or whether
facilities will be idle.
 Capacity planning can be viewed in three time horizons
 In the intermediate range (usually 3 to 36 months) we can add
equipment, personnel and shifts; we can subcontract, and we can build
or use inventory.
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 options of
ADJUSTING CAPACITY
Time Horizon
Add facilities
Long-range
planning
Add long lead time equipment
*
Intermediate-range Subcontract Add personnel
planning (aggregate Add equipment Build or use inventory
planning) Add shifts

Schedule jobs
Short-range
planning
(scheduling)
* Schedule personnel
Allocate machinery

Modify capacity Use capacity

* Difficult to adjust capacity as limited options exist

© 2014 Pearson Education

 design
& EFFECTIVE
CAPACITY
Design Capacity
Is the maximum theoritical output of a system an a given period under ideal
conditions.
Effective Capacity
Is the capacity a firm expects to achieve given the current operating constraints.
Effective capacity is a often lower than design capacity because the facility may have
been designed for an earlier version of the product or a different product mix than is
currently being produced
Utilization
Is simple the percent of design capacity actually achieved
Efficiency
Is the percent of effective capacity actually achieved.

© 2014 Pearson Education

 capacity
CONSIDERATIONS

Forecast demand accurately

Product additions and deletions, competition actions, product life cycle and unknown
sales volumes all add challenge to accurate forecasting
Match technology increments and sales volume
Capacity options are often constrained by technology.
Find the optimum operating size (volume)
Economies and diseconomies of scale often dictate an optimal size for a facility.
Build for change
Managers build flexibility into facilities and equipment; changes will occur in
processes, as well as products, product volume and product mix.

© 2014 Pearson Education

 bottleneck analysis
& THE THEORY CONSTRAINTS
Capacity Analysis
Involves determining the throughput capacity of work stations in a system and
ultimately the capacity of the entire system.
Bottleneck
Is a operation that is the limiting factor or constraint
Bottleneck time
Is the time of the slowest work station (the one that takes the longest) in a production
system.
Throughput time.
The time for a product to go through the production process with no waiting

A B C
2 min/unit 4 min/unit 3 min/unit
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 bottleneck
MANAGEMENT

1. Release work orders to the system at the pace of set by the

bottleneck capacity
2. Lost time at the bottleneck represents lost time for the whole
system
3. Increasing the capacity of a non-bottleneck station is a mirage
4. Increasing the capacity of a bottleneck increases the capacity
of the whole system

© 2014 Pearson Education

 break-even
ANALYSIS
A means of finding the point, in dollars and units at
which costs equal revenues

Fixed Costs
Are costs that continue even if no units are produced. Examples include depreciation,
taxes, debt and mortgage payments.
Variable Costs
Are those that vary with the volume of units produced. The major components of
variable costs are labor and materials.
Contribution
The difference between selling price and variable cost.
Revenue function
Another element in break-even analysis.
© 2014 Pearson Education
 break-even
ANALYSIS
TR = TC or PX = F + VX

TR, TC TR

daerah
UNTUNG
TC

TC1

FC = k  konstanta
daerah
RUGI

0 QBEP Q
© 2014 Pearson Education
 break-even
example

Fixed costs = $10.000 Material = $0,75/unit

Direct labor = $1,50/unit Selling price = $4,00 per-unit

F $10.000
BEP$ = =
1 – (V/P) 1 – [(1,50 + 0,75)/(4,00)]
$10.000
= = $22.857,14
0,4375
F $10,000
BEPx = = = 5,714
P–V 4.00 – (1.50 + .75)
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 NPV
net present
VALUE
Rumus umum :
F = P (1 + i )N
F = future value
P = present value
i = interest rate
N = number of years
Solving for P :
P= F
(1 + i)N
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 limitations
NPV

1. Investments with the same NPV may have significantly different projected
lives and different salvage values
2. Investments with the same NPV may have different cash flows. Different
cash flows may make substantial differences in the company’s ability to
pay its bills.
3. The assumption is that we know future interest rates. Which we do not
4. Payments are not always made at the end of a period (week, month or
year), which is not always the case.

© 2014 Pearson Education

 Thankyou very much
Operations Management, Sustainability and Supply Chain
Management,
Global Edition, Eleventh Edition, PEARSON
Jay Heizer and Barry Rander (2014) © 2014 Pearson Education